Transcription

2 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 150,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policymakers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit today to experience the vast resources of the Insured Retirement Institute for yourself. All rights reserved. No part of this book may be reprinted or reproduced in any form or used for any purpose other than educational without the express written consent of IRI.

3 Overview Today s investors face unprecedented retirement income challenges challenges that simply did not exist in earlier generations. The shift from defined benefit to defined contribution plans, longer life spans and the rising costs of healthcare are among the key elements that will put more of the burdens of saving for retirement on the shoulders of individual investors. Tax deferral of annuity earnings can, over the long-term, be instrumental in increasing the amount of savings that investors may accumulate for their retirement years. This report is a follow-up to The Tax Advantages of Annuities: How Tax Deferral and Guaranteed Lifetime Income Strategies Can Benefit All Consumers, published by IRI in February Among the key findings of the earlier report was that the deferral of taxes on the inside buildup of annuity contracts is a key selling point for advisors and investors. Also, the present tax status of annuities encourages long-term savings in the products due to a longer horizon needed to counteract the ordinary income tax due on earnings when funds are withdrawn. Additionally, the tax deferred treatment of annuities is extremely important to the utilization of the products for middle class Americans, who comprise two-thirds of annuity owners. In this report, we present new IRI research on the importance that Boomers place on tax deferral and taxation, in general, and the consequences of potential changes in taxation on middle income Boomers likelihood to save for retirement. Key Findings and Analysis Tax deferral remains an important consideration for investors. o 74% of Boomers place some level of importance on tax deferral in selecting a retirement investment; 44% consider tax deferral a very important criterion. o Nearly half (48%) of Boomers between ages consider tax deferral a very important feature of a retirement investment product, and another 29% rate tax deferral as somewhat important. o Nearly one-quarter of investors (23%) cited tax-deferred growth as the primary reason for purchasing annuities. Annuity owners are overwhelmingly middle-income. Eight in 10 buyers of non-qualified annuity contracts had annual household incomes of less than $100,000, including 64% who earned less than $75,000. Changes in tax laws would have the greatest impact on the ability of middle-income Boomers to save for retirement. o 76% of middle-income Boomers consider tax deferral an important criterion when selecting a retirement income product. o 59% of middle-income Boomers would curtail their level of retirement savings should income taxes increase, and 37% would be less likely to save should Social Security payroll taxes increase. o 24% of middle-income Boomers would be less likely to save for retirement if tax deferral is reduced or eliminated.

4 Approximately half (55%) of advisors consider tax-deferred growth an important factor when evaluating and selecting annuities, and 20 expect tax deferral to take on greater importance in the next five years. Higher income tax rates would greatly impede retirement savings. More than half (54%) of Boomers related that they would be less likely to save for retirement should their income taxes rise. Taxes on retirement savings and annuities are deferred, not excluded. o As individuals begin to retire, distributions from annuities are taxed and revenue will flow to the U.S. Treasury. o Annuity distributions are treated as income rather than capital gains. The Value of Tax Deferral Although the emphasis on annuity benefits is on guaranteed retirement income, tax deferral remains an important consideration for investors. According to IRI research, three quarters of Boomers place some level of importance on tax deferral in selecting a retirement investment; 44% consider tax-deferral a very important criterion. Importance of Tax-Deferral in Selecting a Retirement Investment Product, 2012 Don't know/refused to answer 6% Not important 20% Somewhat important 30% Very important 44% Survey population: Americans currently age Preliminary results. Source: Insured Retirement Institute. A closer look at the data reveals that tax-deferral is of greatest importance for younger Boomers and those with household income of at least $30,000. Nearly half (48%) of Boomers between ages consider tax deferral a very important feature of a retirement income product, and another 29% rate tax deferral as somewhat important. These figures decrease slightly as Boomers age, 2

5 likely due to the short time horizons they perceive, yet the results are still telling. Among the older Boomers those in their 60s four in ten cite tax deferral as very important and three in ten assign a level of somewhat important. Importance of Tax-Deferral in Selecting a Retirement Investment Product, by Age, % 4% 19% 19% 29% 32% 8% 21% 31% Don't know/refused to answer Not important Somewhat important Very important 48% 46% 40% Similar trends are seen by level of household income. Not surprisingly, Boomers in higher tax brackets are more likely to consider tax deferral as a criterion for retirement savings yet middleincome Boomers are just as concerned. Three-quarters of middle-income Boomers consider tax deferral to be an important criterion for retirement savings. And, as we will see later in this report, 24% of middle-income Boomers would be less likely to save for retirement if tax deferral is reduced or eliminated. The distinction of middle income investors is an important one. Research conducted by Mathew Greenwald and the Gallup Organization indicates that 80% of buyers of non-qualified annuity contracts in 2009 (the most recent biennial survey available) had annual household incomes of less than $100,000 and 64% earned less than $75,000. 3

6 Importance of Tax Deferral in Selecting a Retirement Investment Product, by Household Income, % 3% 3% 20% 17% 29% Don't know/refused to answer 25% 32% 32% Not important Somewhat important Very important 36% 44% 48% <$30K $30K - $74K $75K+ Survey population: Americans currently age Preliminary results. Source: Insured Retirement Institute. Separate research from IRI and Cogent Research also illustrates the importance that investors place on tax deferral. In the report, The Evolution of the Annuity Industry: Analyzing Growth, Trends and Opportunity in the Annuity Industry, published by IRI and Cogent Research in November 2011, nearly one-quarter of investors (23%) cited tax-deferred growth as the primary reason for purchasing annuities, ranking behind guaranteed income in retirement (34%) and advisor recommendation (27%) yet significantly ahead of principal protection (9%) and death benefits (3%). The same report also sheds some light on the opinions of financial advisors. Approximately half (55%) of advisors consider tax deferred growth an important factor when evaluating and selecting annuities. Additionally, 20% of advisors expect tax deferral to take on greater importance in the next five years (78% expect no change). Although this level of importance is considerably less than that assigned to carrier financial stability (93%), guaranteed income options (89%), and investment options (73%), it illustrates that tax deferral still carries some weight when evaluating retirement income products. It must be reiterated that taxes on retirement savings and annuities are deferred, not excluded. Deferral treatment is not equivalent to the exclusion associated with other tax expenditures. As individuals begin to retire, distributions from annuities are taxed and revenue will flow to the U.S. Treasury. Therefore, the removal of the tax-deferred status of annuities would not necessarily 4

7 increase the tax revenue generated by the products. Yet, it would result in the reduced use of annuities among the populations that have come to rely on them most middle-income investors. Income Taxation and Middle-Income Boomers Given the ongoing discussions in Congress about income taxation, IRI set out to quantify the impact of tax increases on Americans likelihood to save for retirement. Not surprisingly, higher tax rates would impede retirement savings yet the magnitude of this impact is quite high. More than half (54%) of Boomers related that they would be less likely to save for retirement should their income taxes rise. As annuity withdrawals are taxed at ordinary rates, this would also have a great impact on annuity owners, most of whom are middle-income investors. If combined with a reduction or elimination of tax-deferral benefits on annuities, a rise in income taxes would be a great burden to middle- income annuity holders during the many years in which they are saving for retirement. Don't know 4% Impact of Increase in Income Taxes on Retirement Saving, 2012 I would be less likely to save 54% I would be more likely to save 10% It would have no impact on my likelihood to save 32% Survey population: Americans currently age Preliminary results. Source: Insured Retirement Institute. Nearly 60% of Boomers in their 50s expressed that their ability to add to their retirement savings would be negatively impacted by higher income taxes. This is of concern for several reasons. First, younger Boomers will require a greater reliance on personal savings for retirement than older Boomers due to the migration from defined benefit to defined contribution plans. Second, with less money, if any, to put aside, the benefits of tax-deferred compounding are also reduced, leaving them with a smaller nest egg at the time of retirement. 5

8 Impact of Tax Law Changes on Middle-Income Boomers Percent Less Likely to Save for Retirement 59% 37% 24% Reduction or elimination of tax incentives for retirement savings Increase in Social Security payroll tax Increase in income taxes The reduced likelihood to save should their income taxes increase is most pronounced among middle-income Boomers. Additionally, an increase in Social Security payroll taxes would likely result in reduced retirement savings among nearly 40% of Boomers. This can be detrimental to the long-term retirement security for the same reasons as mentioned above plus, this segment of Boomers will need to rely on more than Social Security to ensure a comfortable retirement. According to the IRI report, Middle-Income Boomers and Retirement: Tapping the Significant and Underserved Middle-Income Market, only 48% of middle-income Boomers expect Social Security to comprise a major portion of their income during retirement, and only 38% expect to rely heavily on traditional pension plans. Additionally, 21% of middle-income Boomers expect personal investments to play a significant role in providing income during retirement, compared to 36% of Boomers in higher-income brackets. It is essential, therefore, that middle-income Boomers be encouraged to save on their own for their future retirement expenses. Increased taxation, whether in the form of higher income taxes or the loss of the tax-deferral of earnings, will have the opposite effect for close to two-thirds of this population. 6

9 Conclusion IRI research shows that Boomer expectations for retirement are clouded by concerns about savings and income. For example, three out of ten Boomers cite concern about having sufficient assets as a top issue as they plan for their retirement years. Annuities are designed to help provide guaranteed income for all Americans who seek to ensure a stable and secure financial future, regardless of access to an employer-sponsored retirement plan. Annuities, therefore, can play an important role in helping to address the potential challenges that retirees face, such as: longevity risk, entitlement risk, inflation risk and medical expense risk that all Americans must consider as they plan for retirement. Millions of Americans have come to rely on annuities for a secure retirement, and eliminating or diminishing the current tax treatment of these products will jeopardize their retirement savings at a time they can least afford it. Nearly three-quarters of Boomers consider tax deferral an important factor in selecting a retirement-investment product, as do more than half of financial advisors. Additionally, more than half of Boomers anticipate having to curtail their retirement savings should their income taxes rise. Younger Boomers and middle-income Boomers are the most likely to experience these negative consequences. While IRI applauds the efforts of the United States Congress to address the deficit, it is imperative that we protect the tax deferral of annuity earnings so that all Americans will have access to these important savings vehicles. Methodology The Insured Retirement Institute (IRI) commissioned Woelfel Research, Inc. to conduct a survey of Boomers approaching retirement or who have recently retired. The research was conducted by means of telephone interviews with adult Americans aged Preliminary results based on a sample of 503 individuals are presented. The sample was selected from a list of households in this age group, developed by Accudata, Inc. by compiling data from available sources such as motor vehicle records. Results were weighted by age and gender to the 2010 United States Census. Data was collected during February and March

Health Care Expenses and Retirement Income How Escalating Costs Impact Retirement Savings January 2012 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit

Retirement Income Planning and the Elder Market Advisor Strategies to Understand and Work With Senior Clients October 2011 About the Insured Retirement Institute: The Insured Retirement Institute (IRI)

WOMEN AND FINANCIAL ADVISING CAREERS: PERSPECTIVES AND PRIORITIES About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization that for more than twenty

The Tax Advantages of Annuities How Tax Deferral and Guaranteed Lifetime Income Strategies Can Benefit All Consumers February 2011 Overview It has been well established that there are three key attributes

Boomer Expectations for Retirement 214: Fourth Annual Report on the Retirement Preparedness of the Boomer Generation April 214 About the Insured Retirement Institute: The Insured Retirement Institute (IRI)

Boomer Expectations for Retirement 2015 Fifth Annual Update on the Retirement Preparedness of the Boomer Generation April 2015 About the Insured Retirement Institute: The Insured Retirement Institute (IRI)

An Insider s Guide to Annuities Whatever your picture of retirement, the best way to get there and enjoy it once you ve arrived is with a focused, thoughtful plan. Introduction 2 What is an Annuity?...

2013 Survey of Owners of Individual Annuity Contracts Conducted by The Gallup Organization and Mathew Greenwald & Associates for The Committee of Annuity Insurers 2013 SURVEY OF OWNERS OF INDIVIDUAL ANNUITY

Retirement Planning: A Changing Dynamic Investors Turn to Advisors for Help August 2014 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is the leading association for the

ab Wealth Management Americas Understanding annuities Rethinking the role they play in retirement income planning Protecting your retirement income security from life s uncertainties. The retirement landscape

Surprise Fixed Annuities Your 5-minute Guide Don t be surprised. When it comes to the retirement that you ve worked so hard for, you may not be willing to accept the risks and uncertainty associated with

Wealth Management Americas Understanding annuities Rethinking the role they play in retirement income planning Helping to protect your retirement income security from life s uncertainties. The retirement

A GUIDE TO INVESTING IN ANNUITIES What Benefits Do Annuities Offer in Planning for Retirement? Oppenheimer Life Agency, Ltd. Oppenheimer Life Agency, Ltd., a wholly owned subsidiary of Oppenheimer & Co.

Variable Annuity Overview CAC.1162 (04.12) Protect Tomorrow. Embrace Today.TM When planning for your retirement, you ll find there are a variety of products, investments and strategies that can be utilized

Invesco SIMPLE IRA Employee guide How many years will you spend in retirement? And how much savings will you need to be able to live comfortably? According to the Employee Benefit Research Institute, 60%

September 2014 Update The Facts of Life and Annuities The Facts of Life and Annuities Introduction... 2 Key Facts... 2 Ownership Is Widespread, but Inadequate... 3-4 Most Individual Life Insurance Policies

Annuities The Key to a Secure Retirement 1 Saving for retirement is crucial, and making sure those resources last throughout your lifetime is just as important. Annuities do both helping you save, then

Statement of William F. Sweetnam Principal, Groom Law Group, Chartered Before the Committee on Ways and Means United States House of Representatives April 17, 2012 Chairman Camp and Ranking Member Levin

UNIVERSAL VOLUNTARY RETIREMENT ACCOUNTS: Expanding Employee Savings Opportunities By Sadaf Knight INTRODUCTION July 27, 2010 A generation ago, workers could count on being able to participate in a pension

Americans Views on Defined Contribution Plan Saving January 2014 The Investment Company Institute (ICI) is the national association of U.S. investment companies. ICI seeks to encourage adherence to high

retirement plans Contributing to retirement plans can provide you with financial security as well as reducing and/or deferring your taxes. However, there are complex rules that govern the type of plans

A Fixed Annuities Guide for Individuals Growth, income and peace of mind The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding

Consulting Retirement Consulting Talent & Rewards The Real Deal 2012 Retirement Income Adequacy at Large Companies RETIREMENT YOU ARE HERE About This Report This study assesses whether employees of large

It s Time to Save for Retirement The Benefit of Saving Early and the Cost of Delay November 2014 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is the leading association

Fixed Annuities & You A Brief Introduction 1 2 What is an annuity? An annuity is a contract between you and an insurance company; it provides unique retirement planning benefits. Annuities are purchased

Retirement Plans Planning ahead: Understanding your 403(b) retirement plan Plan Participant Guide What is a 403(b) plan? The 403(b) is a tax-deferred retirement plan designed to help you invest regularly

IRAs: Powering Your Retirement One of the most effective ways to build and manage funds to help you meet your financial goals is through an Individual Retirement Account (IRA). An IRA can put you in control

An Easy-to-Understand Introduction to the Retirement Plan and the Savings Plan Annuities How the Plans Work Contributions Eligibility Enrollment Other Benefits November 2015 WELCOME TO THE YMCA RETIREMENT

The Basics of Annuities: PLANNING FOR INCOME NEEDS TABLE OF CONTENTS Income Beyond the Paycheck...1 The Facts of Retirement...2 What Is an Annuity?...2 What Type of Annuity Is Right for Me?...2 Payment

March 2013 The Basics of Annuities: Planning for Income Needs summary the facts of retirement Earning income once your paychecks stop that is, after your retirement requires preparing for what s to come

october 2012 Understanding Traditional and Roth IRAs summary An Individual Retirement Account (IRA) is a powerful savings vehicle that can help you meet your financial goals. As shown in the chart on page

II A Single-premium, Deferred Fixed Annuity for an Active Retirement 71003-11B 9/11 Client Guide The Power to Help You Succeed It s essential for you to choose a strong and stable company that can help

EXPLORING YOUR IRA OPTIONS Whichever you choose traditional or Roth investing in an IRA is a good step toward saving for retirement. 2 EXPLORING YOUR IRA OPTIONS Planning for retirement can be a challenging

Retirement Plans: Evaluating the New Roth IRA Conversion Opportunity By Christine Fahlund Starting next year, investors will have the option of converting all or part of their money in a traditional IRA

Understanding fixed annuities An Overview for Your Retirement No bank guarantee Not a deposit May lose value Not FDIC/NCUA insured Not insured by any federal government agency 3/15 23264-15A Contents Get

Understanding annuities An Overview for Your Retirement No bank guarantee Not a deposit May lose value Not FDIC/NCUA insured Not insured by any federal government agency 2/15 13096-15A Contents Get Ready

Payouts. Protection. In One Place. ING Single Premium Immediate Annuity issued by ING USA Annuity and Life Insurance Company Your future. Made easier. Payouts. Protection. In today s financial world, some

Robert W. Baird & Co. Incorporated Important Information about your Annuity Investment What is an Annuity Contract? An annuity is a contract between you and an insurance company, under which you make a

Variable annuities A tax-advantaged way to save for retirement Common terms Annuitant The person (may be the same as the contract owner) whose life expectancy is used to calculate the income payment amount

Making Retirement Assets Last a Lifetime PART 1 The importance of a solid exit strategy During the working years, accumulating assets for retirement is one of the primary goals of the investing population.

Understanding Annuities Annuities ARE NOT INSURED BY FDIC OR ANY FEDERAL GOVERNMENT AGENCY MAY LOSE VALUE ARE NOT A DEPOSIT OF OR GUARANTEED BY ANY BANK OR ANY BANK AFFILIATE IFS-A092313 Ed. 01/2005 Letter

Voya Single Premium Immediate Annuity issued by Voya Insurance and Annuity Company Payouts. Protection. In One Place. Payouts. Protection. In One Place. In today s financial world, some products provide

Invesco SIMPLE IRA Business owner guide As a self-employed person, how will you pay for your living expenses when you re no longer able to work? And how much will you need? According to U.S. News & World

G U A R A N T E E D I N C O M E S O L U T I O N S NEW YORK LIFE LIFETIME INCOME ANNUITY NEW YORK LIFE: BUILT FOR TIMES LIKE THESE New York Life Insurance Company, the parent company of New York Life Insurance

premiere select Rollover IRA Invest in your retirement today. Leaving your current job can be challenging in any environment. For many of us, it can also be a bit overwhelming. That s why it s comforting

Voya Single Premium Immediate Annuity issued by Voya Insurance and Annuity Company Payouts. Protection. In One Place. Payouts. Protection. In One Place. In today s financial world, some products provide

A Guide to Planning for Retirement INVESTMENT BASICS SERIES It s Never Too Early to Start What You Need to Know About Saving for Retirement Most of us don t realize how much time we may spend in retirement.

deferred retirement option program (DROP) for the IBC model plan program I need a financial plan for life after DROP AXA Equitable is proud to support the IBC s Florida Education Initiative www.themodelplan.com

The Boomer Annuity 11018Z REV 09-12 The Boomer Annuity Being part of one of the most influential groups in America, your desire to maintain your independence and freedom into the next phase of your life

Variable Annuity Marketing from the Perspective of Consumers Financial Awareness By Atsuko Kuribayashi Insurance Research Group Introduction Variable annuities have become increasingly popular as a wealth-building

Making the Most of IRA Opportunities Why Is Saving for Retirement So Important? Increasing life expectancies mean more time spent in retirement. Aging population puts added strain on Social Security and

www.rfawealth.com Wealth Strategies The Importance of Age-Based Tax Planning Part 9 of 12 Age Based Tax Planning WEALTH STRATEGIES Page 1 In today s world, more and more of the responsibilities of preparing

BUYER S GUIDE TO FIXED DEFERRED ANNUITIES The face page of the Fixed Deferred Annuity Buyer s Guide shall read as follows: Prepared by the National Association of Insurance Commissioners The National Association

October 8, 2012 The U.S. retirement savings system encourages individuals to save for retirement by providing income tax exclusions or deductions for contributions to employer-sponsored defined contribution

Explorer A Deferred Fixed Annuity for a Confident Retirement 60002-11A 9/11 Client Guide The Power to Help You Succeed Pacific Life has more than 140 years of experience, and we remain committed to providing

Your 403(b). Made better. A unique opportunity for tax-free retirement income. Your future. Made easier. The Roth 403(b) contribution option. I m ready to Roth. I m still more of a traditional type. Is

Allianz Life Insurance Company of North America Understanding fixed annuities Protection for your retirement money M-5210 Page 1 of 12 Page 2 of 12 It s time to rethink retirement. In recent years, the

BUYER S GUIDE TO FIXED DEFERRED ANNUITIES WITH APPENDIX FOR EQUITY-INDEXED ANNUITIES Prepared by the NAIC National Association of Insurance Commissioners The National Association of Insurance Commissioners

Stretch Your Net Worth Take Care of Your Family Take Care of Yourself The Stretch IRA Concept from American National Insurance Company Stretch Your Net Worth Take Care of Your Family Take Care of Yourself